recommendations. when developing rates there's 3 major components. also noted the reinvestment for the liability of the infrastructure both water and sewer system once we identify those costs then move into the cost of service what is a fair and proportionate share and finally integrate design. how do do we recover those costs. as part of this independent process we integrated a lot of information. we developed a comprehensive financial model basically incorporated those 3 elements projections cost of

service and the final rate design it also becomes a long-term tool that puc staff can use in terms of maintaining and evaluating projections over time and finally recommendations again this is our independent view but formed through a collaborative process with staff as well as the public so in general we do believe the puc rates in process as well as final rates do adhere to california state law a critical point to deliver and agree with the overall needs to pay for not only the inflationary o and m costs but we're recommending that the tier break for the water system for the single family has increased from 3 ccf the 748 gallons per unit in alignment

with the customer usage patterns unique to the city and we're recommending on the wastewater side a single unit cost per water discharge to the system we're recommending an increase or slight modification to the capacity charge in alignment with your costs but also the capacity requirements of newcomers coming to the system and also recommending that you update your miscellaneous charges with respect to providing services to ongoing customers whether meters etc. with that i'd like to open up to any questions that you may have. >> commissioner torres. >> when you say that this city is unique with respect to water. >> san san francisco has the

lowest consumption in the country. >> can you go back to the slide? >> the recommendations? >> yeah. this one of increasing the tier one rate to single family residents can you talk about that? what was it before and why the change? >> it's a great question and an important issue to address. as it stands right now both multifamily and single family customers receive 3 ccf in the bottom tier and pay on the second tier above so how does that work? so the ccf is 748 gallons you pay one cost as you get to 4 ccf and above you pay

a slightly higher cost for water. that design from a cost perspective is to recognize that a customer is being efficient when they are using less water. what's important to do is to recognize that what each customer how each customer utilizes this system so when we looked at the customer data between single and multifamily looking at the break points it's clear that single families are using more water they tend to have more people per household and some outdoor irrigation so while we want to continue to urge conservation the one last component comment that i'd make is so the question is okay so if we're increasing the tier are we then going against our desire for

conservation it's a very important question but the truth is part of this rate package in the coming year if adopted, a single family customer using 4 ccf of water would still pay a little bit more compared to the existing rates reflecting 2 things the slight increase in cost between years but also the way we set the rates. >> so mr. pearl is going to do a presentation after this and there's actually some illustrations in his presentation that will bring more light to that. >> that would be great and the removal of the tiers seems like there's a similar answer. >> yeah i mean it's a similar answer but i think mr. pearl has more detail so if we can have him come up and ask him the questions. >> thank you.

>> thanks very much for being here today. >> thank you. >> all right have a good afternoon. >> good afternoon. >> good afternoon charles pearl deputy cfo at the puc i'm here to present the water and sewer rates proposal for your consideration. >> if we we can go to the slide. so what's before you today we are presenting rates for your consideration action is scheduled for these rates in 3 weeks on may 13th and 4 agenda items for your consideration retail water and sewer rates capacity charges and miscellaneous charges and i'll describe these in a little more detail in a moment there's a number of documents provided for your review and the cost of service study is one of the larger ones for you to take a

look at and the city charter requires for each of our 3 enterprises and the next one you will see will be on power about a year from now. the other large document in your packet is a staff report again which is a hundred page document which forms the basis of our proposal before you today. so what's changing? again there's a lot of items before you and if you have any questions please don't hesitate to ask but there's 2 basic changes in setting rates so math and structure so the math part of it -- we're proposing rates for the next 4 years in terms of of the math that averages for a single family residential customers using 6 units of water average annual increase between 7.8 and 9.8

percent the structural changes, the bullets below i'll describe and the project has been underway for the past year and started a year ago and it's progressed to today with this rates proposal we've had our budget workshop held with this commission back in november to gain some input from you folks on what you would like to see in the rates package we've had 10 meetings and over ninety presentations to rate pay er groups and in terms of next steps important for the public to understand will present today action scheduled for may 13th the package has been delivered to the board of supervisors who have a right to call a hearing on the rate package assuming that moves forward these rates would go into effect july 1st of this

year and you have heard some of these already and the first is the first tier again basically meaning the more you use the more you pay we're recommending an increase for that first tier from 3 units to 4 units so an additional 748 gallons for the single family residential customers and this is why -- again, in looking at this slide which shows single family customers on the top, the average usage is about 4 units each month for that single family customer so we want that first unit to represent that average amount of water. below that you see multifamily customers typically a smaller household no outdoor irrigation needs their usage is less keeping it at 3 units for the multifamily customer so the

next is interruptible rates for our irrigation customers only in exchange we provide a discount for that service so the change that we're proposing is to roll in capital expense currently the rate discount is 40 percent for this customer so will result in about a 9 percent reduction and the only thing we're excludeing is the storage space. >> a question on the interruptibles have we ever interrupted anybody. >> not to my knowledge at least here in san francisco. >> is there any criteria for when we would interrupt them?

are their customers that would actually get cut off. >> commissioner we're working with the water enterprise to develop the next steps and that will be part of this process as well as the application process. >> we have rules that we follow it's pretty mechanical and it should be. for an interruptible rate should be clear otherwise we're just giving money away. >> agreed. >> when will that criteria be developed. >> within the next couple of months it will be in place for the july 1st start. >> so that will come back for us to discuss or approve. >> we're happy to bring that information back. >> i think it would be quite interesting to talk about what would qualify an interruption whether it's below a certain water use or supply or use

question -- i don't even have a sense of it. >> it's not a use question so much as a supply question so when you think about interruptible customers they are the ones you can actually curtail first before you curtail commercial industrial that's why they get the price break and we can come back to you to you with the criteria. >> i would assume it would be something like you would do voluntarily and then interruptibles then mandatory? >> correct. >> i have a question going back to your -- i guess it's your slide 5 -- two questions come out of that one is on the tier structure.

>> uh-huh. >> you have elasticity information. >> we do. >> what is the difference in behavior that you can expect? >> in looking at elasticity over the past several years the rates have an impact of about a point 3 so 1 percent increase in rates results in a point 3 percent reduction of usage again much of that could be associated with more fixtures and part of it also is using less water or using water more wisely. >> so for example if we wanted to use the price signal to get a 30 percent demand reduction would that increase prices by a hundred percent. >> that's right. >> which we're not going to do

on a tier structure. my point on that is if we have backwards stuff going on here and on on the illusion it changes behavior in a way -- the other question it shows charges -- how do our costs line up in terms of fixed and variable? i think todd mentioned something about that earlier. >> yeah we have a cost that's about 84 percent fixed if you include debt service and a lot of personnel costs one could consider as being fixed and as i said cost chemicals and that sort of thing. >> so we're kind of backwards our rate structure does not reflect our cost structure and

by a rather massive amount which gives us problems when you have economic downturn and drought and frankly when you conserve. it makes you lose revenues at the precise time you need them. i'll come back to that but i think the work you have done in terms of putting together a coherent package is good but i think we need to take a look at the long-term that could be better. >> so this fire service is related to metered fire suppression systems sprinklers and that that sort of thing. so the chart that's here shows how this rate has changed and the allocation of costs over the past few years our

independent consultant is recommending that we revert to the cost allocation that we had in 2009. our current allocation tends to favor the allocation towards the larger meter size so you will see the costs for the smaller meters are increasing while the larger meters are decreasing. >> in terms of of wastewater we have one change we're suggesting here and that's related to the tiers as well again this current structure is based on the 3-unit tier break for the first tier. we are recommending a similar sort of change as water for the single family customer but ultimately our recommendation to the

commission is to phase out all tiers of wastewater for all customers and the main reason because that second tier is meant to capture the concept of peaking costs and the idea of peaking the larger customer with a larger demand on the system has a greater extent of the expense and it's hard to tell the exact nature of peak sewer flows tying that flow back to a particular customer and talking about a system that handles storm and sewer flows so we're proposing to phase out the concept of a 2-tiered structure over this 4-year period by the time we get to the 4th year we'll have a single tier for wastewater and brings san francisco in line

with all water facilities in california as we're the only wastewater utility that has a tiered wastewater structure so this changes more from a rate equity perspective. >> in terms of of low income that's a concern for us we currently offer programs which i've noted here the community assistance program the largest program approximately 20 thousand individuals enrolled in this program providing a 15 encounter for quarter and the other 2 programs below that are more housing related and are smaller as you can see the estimated expenses are noted here approximately 2.3 million currently growing to 3.2 million at the end of this 4-year cycle. >> i have a question. of the

economically disadvantaged community what portion of that do you think these programs cover? >> it's a hard question to answer commissioner we looked at data from other city agencies here that estimate single family households at approximately 20 thousand that meet the criteria that we use for measuring the cap program which is income based eligibility however many of those customers would be renters and not necessarily direct single family residential customers which this program supports so we will be gathering more data in terms of what is the larger size of the -- this customer class. >> okay. my concern is we measure affordability as a percentage of median income. . >> uh-huh. >> and in this city 70 thousand

bucks and a whole lot of folks don't earn 70 thousand bucks so it could be a real burden to people who earn considerable ly less than that. these programs address that concern. my question is how do we make sure that this covers all the people that need to be covered. >> in some cases you have renters who don't get passed through anyway so they are protected at the landlord's expense so reading the material i couldn't figure it out that would be something i'd be interested in hearing back if there's a category of people if there's ways these programs could be expanded to cover the disadvantaged communities i'd be interested in hearing that. >> i'd second that as well.

>> i have a question back on wastewater why are we waiting 4 years to go to a single rate? >> for a couple reasons commissioner. the impact of this change actually effects

the lower users of our system the users that have lower water usage more the impact of this change actually causes a little bit of a larger increase for that lower user the sewer bill is a larger portion of the overall bill so as that is being evened out that will actually result in a little bit of a larger rate increase for that lower user and so we wanted to phase that in to lesson the impact for that customer. >> i see. >> in terms of of what the average bill looks like slide 11. as you can see operations growing at or blow the rate of inflation. >> we do want to convey the idea what does this mean in terms of affordability so the numbers below show that both as a percent of the overall bill as it related to income going from 1.3 percent to 1.6 percent this commission has approved 2 and a half percent but our job

that we work hard at every day is to keep this as low as possible so we're committed to doing that so if you fill up a gallon jug and pore it down the drain it's under $0.02 for that service that's growing to 2.7 cents in 4 years and the last measure that customers have at least told us that's helpful for them to understand per person per day cost is just under a dollar and that's projected to increase to a 1.35 by 2018. bill comparison -- >> how does that relate to the annual rate of inflation for other consumers? isn't it far less? >> is it less than the

potential inflationary rate for food and services gas? >> no it's above the rate of inflation so our rate of inflation is 2 or 3 percent a year currently. 3 percent per year in terms of operating expense and the average customer 38 percent over 4 years so if you compare against inflation it's comparing the 12 percent to 38 percent. >> what about a gallon of milk. >> goes up and down gas goes up and down. >> i'm trying to figure out the comparable models that we need to educate the public about what this will mean over the long-term. >> i don't have a slide here but happy to share with you when we come back in may comparing our service to the phone bill capable bill we're in the middle if you compare to

cable or trash or phone or household bills. . . >> comparable models for other cities in california. >> yes we're right in the middle. so again we're talking about a potential increase of about 8 percent for the san francisco combined bill for next year. the other cities will be talking about similar sort of changes for this bills as well so these bars will change. >> as i said to you in the meeting -- these are not comparable cities santa cruz is totally different so the cities that are measurably i tell same as we are and compare those rates. . >> oakland and san jose would be the agencies that we compare

it to. the third item we're halfway through the third item is related to water and wastewater capacity charges. capacity charges are charges to customers that have new or increasing demands from the existing water or wastewater system we have a number of recommendations to streamline the process for these charges. the main thing we're proposing is to tie both the water and sewer charges to the water meter size. using updated plumbing codes into the water demand calculation all of this will make the calculation process a lot quicker and clearer and we're also proposing to collect all of the charges up front and if there's a change that happens in the building permitting process in terms of the plan we'll go back and adjust the fee and hopefully take the puc from

being the last part, the tail end of the permitting process and we tend to get dinged for that. so i can appreciate this is a little small. look at the far right column you are seeing a lot of negatives and this shows how this new incorporating the water efficiency into the calculation this will in some cases reduce to zero what the capacity charge will be. the idea is there's only a capacity charge assessed if the water meter has to change. lastly miscellaneous and connection fees. most of them are tied back to the cost of providing that service. generally this cost and service review at this time when we're doing the rate

study and adjust the fees annually provided by the city controller and at the bottom of the slide we have 2 changes or new fees that we're proposing. we had a hard time getting our builders and contract ors to report on water use so we're proposing to change the penalty fee from $25 to the cost of 25 units of water which is their average typical use in a month so that will give them the incentive to bring in the meter so it's read as it should be. the second proposal is a meter reading fee of $5 a month and we then if that happened have to send a meter reader to the home to read that meter each month so we're suggesting or

proposing a five dollar fee for that service i should note pg and e has a similar cost for their service as well. this rate package abides by the policy this commission established. this scorecard as noted here was derived by the controller's office a few months ago gave us a score of a minus and there's a couple of areas for improvement and that's what we'll work on and in particular the lost time incidents but again we wanted to show you the a minus score we're fairly proud of. and lastly, the rate notice -- it's a little small actually very small on this slide we have copies here over on the table for the public and i can give you a copy if you want a bigger

version of this this is a copy of what was sent out to property owners and rate pay ers this is the prop 218 notice the formal notification of changes in rates and the protest is noted on this form that's why you received the protest letters of almost a hundred and in order to cause a requirement for protest, a majority of the property owners would need to file that formal protest so we're right around a hundred right now. and with that i just would quickly like to thank my team as well as the puc and city attorney team who provided support all along this year long road and with that i'm happy to take questions. >> thank